5 Simple Steps to Creating Proper Asset Allocation

Proper Asset Allocation

Every investor tries to build an excellent investment portfolio. To make such a portfolio, your investments require asset allocation.

In a bid to build a vast investment portfolio, most investors tend to focus on getting the best investment option, such as stocks or bonds. However, as an investor in today’s marketplace, the key to financial success and long-term growth of your investments is in a well-maintained diversified portfolio.

Take for instance a street vendor who sells both umbrella and sunglasses at the same time with the knowledge that it is easier to sell umbrellas during the rainy season and sunglasses in summer. What this example demonstrates is that as an investor, you should fill your portfolio with an appropriate mix of bonds, stocks, cash, fixed deposits, real estate, gold, pension funds, and other investments. This mix is what is known as an “asset allocation.” Your portfolio should meet your future financial requirements but still give you peace of mind.

Here are five steps to help you achieve a proper asset allocation.

Set your financial objectives

The first step towards constructing a proper allocation is to determine your personal financial goals and situation. You have to consider the amount of capital to invest, your age, future income needs, and your time horizon. When you need the money is just as important as what you’re saving, as such, your time horizon can be for a couple of months or several decades.

Your future income needs can be anything from buying a house, paying off debt, saving for a wedding, making a charitable donation, planning for a college fund or a retirement trip. Each of these goals requires a different amount of money for success. Setting your goals will help you identify the amount of money you need to save to achieve them

For instance, a 55-year older adult hoping to pay for a child’s college education and possibly retire in the next decade can’t have the same investment strategy as a 22-year old college graduate who is just starting in career. Your current wealth and saving habits versus your goals will help you determine your proper asset allocation.

Gauge your Risk Tolerance

Next, you have to factor in your risk tolerance and personality. While investing, you should base your risk tolerance on your view and attitude towards investment volatility and your time horizon. Are you willing to hazard the potential loss of some amount of money for the possibility of higher returns?

If you can’t handle the inevitable ups and downs of the stock market, fixed-income investments such as bonds may appeal to you more. Or if your investment is for a short-term goal of about three years, you can’t afford to take chances with the money not being there when you need it. If you can’t have a peaceful night rest if the value on your investments drops for a short while, then the chances are that the potential high returns are not worth the stress. What’s more, the possibility of higher returns comes with a greater risk of losses. So, you have to optimize the chance to suit your lifestyle and situation. For instance, a person nearing retirement should focus on protecting their assets and drawing income from them. On the other hand, a young person won’t have to rely on their investments for profit, so they can afford to take higher risks in the search for greater returns.

Find the Asset Class that Fit your Profile

Generally, investors who can bear more risk are more aggressive with their portfolio. If you have a high-risk tolerance, then you can devote a more substantial portion of your portfolio to equities and less to fixed-income securities like bonds. On the other hand, a person with a low tolerance level will have a more conservative collection of assets dominated by fixed income securities with fewer equities.

Choose a Mix of Assets

Keep in mind that beyond the particular fund or securities you choose, the way you distribute your funds among various asset classes has more impact on your success and returns. In alignment with this, you can divide the equity portion of your portfolio between companies with different market caps and industrial sectors. Then, you can allocate the bond portion across various subclasses such as long-term and short-term, and corporate debt versus government debt.

To enhance a diversified portfolio, some people prefer to invest in mutual funds. These funds include a wide range of asset classes, and they allow investors to hold bonds and stocks that are well-researched and selected by fund managers. If you do not like the idea of a mutual fund, you can invest in Exchange-Traded Funds (ETFs). Simply put, ETFs are mutual funds that trade like stocks. The diversification for ETFs is based on capitalization, country, sector, and the likes.

Have a Big Picture

To set up the most efficient allocation strategy for your financial goals, you have to look at your entire financial picture. It is best to diversify with an eye on all your assets, including real estate, bank savings, insurance policies, and tax-deferred retirement savings you may hold, such as an IRA.

Regularly Monitor your Asset Allocation

After establishing a proper portfolio, you still need to analyze, reassess, and rebalance it periodically. This is because the asset allocation can change over time. For instance, a rise in the assets’ value can increase the portfolio volatility, the investor’s financial status can change, and the risk tolerance of the investor can be reduced by age, especially some years before retirement. 

If any of these factors alter, you also have to change your portfolio accordingly. Rebalancing involves determining which assets are overweighted (in an excess amount) and those that are underweighted.

The Bottom Line

As you construct and reconstruct your investment portfolio, it is incredibly crucial that you maintain your diversification. Owning securities within each asset class (equities and fixed-income) is not enough; you also have to diversify within an array of subclasses and industry sectors.

As we’ve earlier mentioned, you can easily achieve superior diversification by using ETFs and mutual funds. These two are investment vehicles that allow individual investors to enjoy the considerable scale diversification that fund managers and big companies enjoy.

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Profitable Small Businesses that are Worthy of Your Investment


Starting up a business is a challenge. Whether it is small or big, you need to follow a series of steps along with different strategies to make it a profitable venture. To make a business worthy of your investment, it is necessary to perform thorough research on each aspect such as a business idea, market, competitors, and finances etc.

Once you find the best idea, your next step should be based on logistics of your business along with a well-crafted plan. These steps are fundamental and crucial. This way, you will create a strong base for your business as well.

So, if you are looking for a small startup that is worthy of your investment, have a look at these 10 fantastic business ideas.

1.    Real Estate Broker

Working as an intermediary between sellers and buyers, real estate brokerage is one the most profitable businesses. You will only require a brokerage license. This is also a cost-effective business idea, which means you can run it without an office as well.

However, you need to know the industry and your competitors before beginning and then you are good to go. Plus, real estate brokering is all about contacts; make sure lots of people know about your business so you can achieve your milestones.

2.    Catering Service

Catering is ideal if you are looking for a small but profitable business as you can provide these services from your home. Many people and even businesses do not think twice to pay high-quality caters. With reliable catering services, you are sure to make a handsome profit, especially on different special occasions.

If you are a hard worker and determined to build a successful small business, catering seems a decent business idea.

3.    Online Tutor

Online tutoring involves creating professional social media profiles and letting people know about your skills. Whether you love to play musical instruments or know different languages, you can teach anything online and become an online tutor.

Online tutoring neither requires extra expenses nor time. So, you can consider it if you can speak fluent French or play different piano tunes.

4.    Food Truck

Food always stays in demand and attracts people. Therefore, you can never go wrong with a food truck, especially if you provide high-quality food and beverages. Take note that opening a small restaurant requires a considerable amount of money.

Plus, there is a risk of loss because of intense competition in the food industry. In this case, a food truck seems an interesting idea. You do not need space or extra staff which makes it a profitable small startup venture.

5.    Personal Trainer

People who love to stay fit and healthy never mind paying their personal fitness trainer. Also, getting certification in personal training is affordable as well. Thus, you can get the required qualification and start offering personal training services.

This is one of the small businesses that are worthy of your investment as in current times people know the significance of a healthy lifestyle. Since this industry is competitive, you should use the internet to market your services and to build your client network.

6.    Web Designing

Technology companies are always looking for web designers who can make top-notch websites. Web designing entails developing value-driven, intuitive and beautiful websites.

If you have got an eye for website designing, you can offer these services to various companies and brands and start your web designing business. If you are new to this field, you can even learn the basics of website crafting and become a pro. Moreover, there are many online courses available that can teach the latest website trends as well.

7.    Social Media Marketer

Social media platforms have become a part of our daily life. Not only this, many people are running their businesses online on these platforms. You can start marketing on your social media profiles as well. For instance, you can use your Instagram account for marketing purposes.

All you need to do is decide the type of content you are willing to share such as technology, beauty, or health etc. and build up a considerable following on your account. Brands often look for social media accounts with a huge following to market their products. If your content is related to their business, they are likely to approach you.

8.    Local Business Consultant

New startups are always in demand of consultants who can solve problems related to their business and provide solid advice. Therefore, if you have developed the right skills or are a pro in your industry, you can become a consultant.

Whether you are a business strategist, marketer, or have other skills, feel free to offer your services to local businesses. Plus, you can take help from online courses on how to get clients and build your brand that is worth your investment.

9.    Travel Consultant

You can turn your love for traveling into a profitable small business. You can begin by creating official groups on Facebook or LinkedIn. This is an effective way to attract travel enthusiasts. In the group, you can share cheap flight rates and even recommendations for next traveling destinations.

Travelers are always in search of different recommendations to explore different places. In this case, they can count on you and you can teach them how to turn their dream trip into a reality.

10.    Become a Photographer

Turning your skills into a small profitable business is easy if you have a passion for photography and you own a camera. All you need to do is learn top-notch editing skills which are crucial in this industry along with finding a suitable niche, such as food photography or travel photography etc.

To build an impressive online portfolio, you should do photo-shoots frequently so people will know about your skills. For this, you should not hesitate to capture a few photographs for free. With a professional portfolio, you are likely to get clients in a short time.

Bottom Line

There are plenty of ideas that are worthy of your investment. However, the competition in different industries can give you a tough time. You can overcome this part if you focus on the quality of your services.


Who we are:  Funded.com is a platform that is A+ BBB rated over 10+ years. Access our network of Investors, get instantly matched with a Lender, or get a business plan by visiting us Funded.com

You can review our featured partners to help your success with your business or project.